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HomeMy WebLinkAboutBPMC Meeting -June 8, 1989 1BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE June 8, 1989 1. CALL TO ORDER Chairman Kelly called the Bradley Lake Project Management Committee to order at 10:15 a.m. in the Training Room of Chugach Electric Association to conduct the business of the Committee per the agenda and the public notice. 2. ROLL CALL The roll call was taken and a quorum was established. In attendance were the following: Designated Representative Designated Alternate Representing Brent N. Petrie Alaska Power Authority Myles C. Yerkes Matanuska Electric Association Dave Highers Tom Lovas Chugach Electric Association Michael Kelly Golden Valley Electric Association Thomas R. Stahr John Cooley Municipal Light and Power E. Paul Diener City of Seward Sam Mathews Homer Electric Association Representatives Absent Alternates Absent Representing Robert E. LeResche Alaska Power Authority James F, Palin* Matanuska Electric Association Robert Hansen Golden Valley Electric Association Bob Peirson City of Seward Kent Wick** Homer Electric Association * Note: Mr. Palin resigned from MEA; however, MEA action to appoint a new PMC Representative has not been received. **Mr. Wick later joined the meeting. Others Present: ne SPECS OMENS Ron Saxton Golden Valley Electric Association, Inc. Marcey Rawitscher Alaska Power Authority Julie Becker Alaska Power Authority Carol Johnson Chugach Electric Association BRADLEY PMC (BRADJUN8.CHP) Page 2 of 8 MEETING MINUTES Ken Ritchey : Matanuska Electric Association Denise Burger Alaska Power Authority 3. PUBLIC COMMENT There being no public comment, Chairman Kelly proceeded to agenda item 4. 4. MODIFICATION OF AGENDA The following items were added to the agenda: 13.b. Bradley PMC Attorney 13.c. Bradley Operation and Maintenance 13.d. Bradley Stability Agenda item 13.b., Schedule Next Meeting, was renumbered agenda item 13.e. 5. APPROVAL OF MINUTES Mr. Petrie reported that the minutes of the May 4, 1989 meeting, which was held in Juneau, were not in final form. Action on this item was deferred to the next meeting. 6. BOND FINANCE TEAM REPORT Copies of the June 6, 1989 memorandum from Ms. Rawitscher to the Bradley Lake Finance Team regarding Bradley Lake Finance Team Meeting Report of May 23, 1989, were distributed. Also distributed were copies of the May 26, 1989 memorandum from Jim Seagraves to the Bradley Lake Financing Team regarding Preliminary Financing Schedule. Mr. Petrie reported that the preliminary financing schedule developed at the May 23, 1989 Financing Team meeting would allow the Power Authority to issue some or all of the Bradley Lake long term bonds this Fall (i.e., late September of 1989) in order to take advantage of the relatively low tax-exempt interest rates in the bond market. Mr. Petrie said that a draft of the Official Statement (OS) is currently under review by the Finance Team and that it is anticipated that the Power Authority will distribute the 3rd draft of the OS to the PMC in early July, 1989, when the OS is more complete. Mr. Petrie said that the Power Authority has received proposals for co-managers and that a short-list of 5 firms has been developed. It is anticipated that 2-3 of these firms will be selected to work with John Nuveen & Co. in selling approximately $100,000,000 - $150,000,000 worth of Bradley Lake long-term bonds this Fall. A completion of the bond issuance is anticipated during the later part of 1990. Mr. Highers noted that all of the generation and transmission utilities bond ratings have been rescinded in the past ten days and the National Rural Utilities Cooperative Finance Corporation (CFC) bonds have been downrated as a result of the action by three of Colorado-Ute Electric Association’s unsecured creditors to file an involuntary petition in bankruptcy against it. The Colorado-Ute Electric Association’s bonds were rated A- prior to this event. It was noted that the Power Sales Agreement with the cooperatives undergirds the bond rating for the Bradley Lake bond issuance and that the members must be prepared to respond to this issue at the meetings with the rating agencies and insurance companies on August 14-16, 1989 in New York. Ms. Rawitscher said that the Bradley Lake financing is clearly a municipality utility financing and BRADLEY PMC (BRADJUN8.CHP) Page 3 of 8 MEETING MINUTES that the concerns in the bonding community regarding the Colorado-Ute situation may assist in the Bradley Lake financing. Mr. Highers distributed copies of the June 5, 1989 Press Release by Colorado-Ute Electric Association, Inc. Mr. Petrie reported that an investor tour, which may include mutual fund, rating agency and bond insurance representatives, is scheduled for August 1-3, 1989 in Alaska. Mr. Saxton reported that Larry Beluzzo, Rural Electrification Administration, will report if the contracts under review will be approved by the REA prior to the June 22-23, 1989 Financing Team meeting in Seattle, Washington. 7. TECHNICAL COORDINATING SUBCOMMITTEE (TCS) REPORT Mr. Yerkes reported that the TCS at their June 1, 1989 meeting, reviewed the scope of work for system stability studies prepared by Stone and Webster Engineering Corporation (SWEC) and a proposal from the subcontractor, PTI, to complete additional stability work. Written comments on the scope of work are due by June 16, 1989; subsequently SWEC will prepare a new Request for Proposals, budget and schedule for this work. Award of the project transmission line contract by the Power Authority has been delayed by bid protests; administrative action on this is anticipated in two weeks. The new in-house HEA estimate of the Homer transmission line has been sent to the engineering consultant, Gilbert Commonwealth, after which it will be sent to REA for approval. A software program, DECNET, which would allow communication with each of the utilities, is under consideration. The cost of this software is approximately $20,000. CEA was originally to control Diamond Ridge Substation through HEA. Due to the HEA system delay, CEA has been authorized to install control of this substation directly at Diamond Ridge Substation. Additional information on the utilities’ load characteristics has been requested by the contractor, as Woodward and Fuji cannot design the governor control system to be stable under the contract conditions. The Alaska Power Authority is currently reviewing this issue. Mr. Yerkes stated that the consensus of the TCS is for further studies to focus on a 138 kv transmission line, as opposed to the 235 kv line previously considered. There was no objection to this expressed by the PMC. 8. INSURANCE SUBCOMMITTEE REPORT Mr. Petrie reported that risk assessment for the maximum probable loss at the Bradley Project is under discussion with SWEC. Minutes of the previous Insurance Subcommittee meeting were referenced (i.e., April 24, 1989 meeting as distributed via Mr. Saxton’s May 31, 1989 memorandum); however, copies of the minutes prepared by Mr. Saxton were not distributed at this time. (Reference discussion under agenda item 13.a., Business Interruption Insurance). 9. BUDGET AND FINANCE SUBCOMMITTEE REPORT Mr. Petrie reported that $15,000 had previously been approved for consulting services for the evaluation and development of guidelines and development of the initial Draft Participants Allocation and Scheduling Agreement for the Bradley Lake participants. It was noted that this Agreement will later be assumed by the Operating Agreement. The cost of these services, which includes $5,693 to Frank Moolin and Associates for conversion of guidelines received into the draft agreement, and ° BRADLEY PMC (BRADJUNS8.CHP) Page 4 of 8 MEETING MINUTES remaining services by Donald Greg of Montana as a subcontractor to Frank Moolin and Associates, will exceed the original estimate of $15,000 by $4,858 for a cost of $19,858. V3 etrie motioned C ¢ IV] Vial new na ne V1 d horize A O hi dq icipan A ocation ang Scheduling Agreement work, The motion passed by acclamation. It was noted that the Power Authority would provide a Work Order to Frank Moolin and Associates to expedite this work. Chairman Kelly noted that motions passed without objection would pass by PMC acclamation; however, in the event that any dissent was expressed, a roll call vote would be taken. It was also noted that Mr. Petrie would take the lead in working with the Budget and Finance Subcommittee to develop the procedure and document costs approved by the PMC to be funded with Bradley Lake construction funds. 10. OPERATING AND DISPATCH AGREEMENT SUBCOMMITTEE REPORT It was noted that the first agreement required is the Participants Allocation and Scheduling Agreement, discussed under item 9., Budget and Finance Subcommittee Report. Mr. Cooley reported that work on the agreements required is proceeding on schedule. 11. REVIEW OF PROJECT STATUS Mr. Petrie reported that four protests were filed regarding the Bradley Lake transmission line award to Newberry. The protests relate to whether the required business licenses were secured when the bid was submitted. Administrative hearings with a hearing officer were held last week and the filing of briefs is required by June 9, 1989. The hearing officer’s decision is due to the Commissioner of the Department of Transportation and Public Facilities by June 16, 1989. In the event that a rebid was required, the overall project schedule would not be delayed and the transmission line would be completed by early 1991. Tunnel work through the Bull Moose fault has been completed. This work, which had 60 days allocated to it, was completed in 7 days. The tunnel work will be progressing through a second, smaller fault zone next week; however, at this time the project is 30 days ahead of schedule. It was noted that completion of the tunnel work through the fault zones would be advantageous prior to the bond sale. The Bradley Lake reservoir has the potential to be filled 2.5 months ahead of schedule. Presently the turbine-generator from Fuji is the critical path item on the schedule. Mr. Yerkes expressed concern that the stability concerns be addressed in the project budget, prior to any release of contingencies. Mr. Petrie responded that while the Alaska Power Authority Board of Directors was going to consider reduction of the project contingency at the next Board meeting, this item has been deleted from the agenda due to the Homer transmission line issue. It was noted that funding of the Bradley Lake Project construction from State appropria- tions (i.e., $175 million) will be exhausted in early July of 1989 and that approval by REA of the contracts is required prior to the use of borrowed funds for construction purposes. 12. a. Homer Transmission Line Status This item was deferred, pending the arrival of Kent Wick. BRADLEY PMC (BRADJUNS8.CHP) Page S of 8 MEETING MINUTES 13. a. Business Interruption Insurance Mr. Saxton reported that the Insurance Subcommittee has inventoried the types of insurance required and will proceed to inventory how these types of insurance may be provided. Business Interruption Insurance was identified for the PMC’s consideration as protection in the event the project failed to produce due to the nature of the contract (i.e., Take or Pay). Mr. Saxton noted that Business Interruption Insurance is common in larger utilities and other industries. The Committee asked the Insurance Subcommittee to explore collective Business Interruption Insurance. It was noted that each participant could arrange for separate coverage if desired. Mr. Saxton reported that financial efficiencies could be gained by increasing the participants and risk covered in pooled insurance programs by the Bradley and Anchorage-Fairbanks Intertie projects. Mr. Saxton noted that this pooling would be complicated by the differing issues and members (i.e., Seward is not a party to the AFI agreement and FMUS is not a party to the Bradley PSA) and that ratios for funding differ between the two groups. The Insurance Subcommittee was asked to proceed with exploring this concept; although, it was noted that any merged program would not commence until Bradley Lake Project operation. 13.b. Bradley PMC Attorney Chairman Kelly distributed copies of the May 31, 1989 letter from Mr. Saxton to Michael Kelly regarding BPMC Representation. This letter addressed a possible restructuring of Mr. Saxton’s relationship to the Bradley PMC (i.e., as attorney to the Bradley PMC as opposed to indirect services through Golden Valley Electric Association). Mr. Petrie expressed concern with the lack of a formal, contractual arrangement with the firm of Lindsay, Hart, Neil, & Weigler, and with Mr. Saxton’s expectation of performing work on preparation of the bond issuance, with associated legal fees to be paid from the bond proceeds. Mr. Petrie stated that any legal fees incurred by Mr. Saxton relative to the bond issuance should be borne separately by the purchasers and that the Power Authority feels that it is inappropriate cost for Mr. Saxton’s services relevant to the bond sale to be a bond issuance cost. Mr. Petrie noted that the members may use their own counsel and the services of Mr. Saxton as a utility cost, and that bond counsel and underwriter’s counsel is being utilized. Mr. Saxton said that there was no legal obstacle to the PMC contracting for his services and reimbursing his fees. Mr. Petrie and Ms. Rawitscher responded that there is a 2% limit on the tax exempt cost of issuance expense, as well as rules on allowable project costs under tax exempt bonds by the Internal Revenue Service. The PMC purchasers caucused from 11:25 a.m. to 11:40 a.m. on this issue. At the end of the caucus, Chairman Kelly stated that the preference of the utilities is for Mr. Saxton to represent the collective interest of the purchasers (i.e., as opposed to the interest of the PMC, which would include the Power Authority as a member) as related to Bradley issues, with the current billings and contractual relationship to continue at this time (i.¢., a single bill sent to GVEA for subsequent reimbursement by the other utilities based on the purchasers’ percentage shares of project capacity). Chairman Kelly asked Mr. Saxton to research the issue of whether his fees on the bond issuance can be bonded. Mr. Saxton said that he should be involved in commenting on the Official Statement and the utility members agreed that Mr. Saxton, representing the utilities interests, should monitor the process of formulating the agreements, Official Statement, etc. Chairman Kelly said that Mr. Saxton would continue to minimize his travel and attendance at meetings while monitoring this process. Mr. Petrie said that ultimately the Power Authority preference would be for one attorney, competitively solicited, to represent the PMC. Mr. Petrie introduced Denise Burger, as the Alaska Power Authority Administrative Clerk to Mr. Eberle, Bradley Lake Project Manager. . BRADLEY PMC (BRADJUN8.CHP) Page 6 of 8 MEETING MINUTES 12.b. Bradley Operation and Maintenance Chairman Kelly recalled that Mr. LeResche had previously stated his intention to meet with HEA and resolve the issue of Bradley Lake O&M. Chairman Kelly stated that Jim Seagraves had said at the Bond Finance Team meeting that it is important to the bonding process that this decision be made and communicated at this time. It was also noted that the Power Authority is in the process of soliciting for a Bradley Lake General Foreman. Mr. Petrie responded that it is the Power Authority’s position that the Power Authority will employ the maintenance workforce during the warranty period (i.e., first two years after Bradley Lake start-up). During the warranty period, the Power Authority intends to work with HEA to define the personnel. Mr. Petrie said that the Power Authority intends to negotiate a contract with an operator for the period after the warranty period; however, if they are unable to negotiate the contract, the Power Authority has the option of leaving Power Authority personnel at the site to maintain the Bradley Project. Mr. Petrie said that the Power Authority’s first preference is for one of the utilities to maintain the project after the warranty period. Chairman Kelly noted that the utilities are unanimous in their desire for a utility participant to operate the Bradley project and that they will support HEA’s operation of the Project if HEA is competitive and qualified. It was noted that the Official Statement was vague on this issue and states that the Power Authority will operate the project during the first two years and have the right to contract thereafter. Mr. Yerkes motioned, seconded by Mr. Highers, that the PMC desires that a utility participant operate and maintain the Project after the initial two year warranty period and that the Official Statement reflect this. Ms. Rawitscher noted that full disclosure in the Official Statement would require disclosure of who, when, where and how this would be done. Due to objection expressed to this motion, a roll call vote was taken. Messrs. Diener, Yerkes, Highers, Mathews, Kelly, and Stahr voted yes, and Mr. Petrie voted no. The consensus was that the Finance Subcommittee would review this issue. 13.d. Bradley Stability Mr. Yerkes stated two concerns regarding Bradley stability; 1) stability at loads below 3/4 output of the Project, and 2) that this issue be included as a separate line item in the Bradley Lake approved budget through release of contingency from other items. Mr. Petrie responded that the Power Authority Board of Directors is not considering modification of the Bradley Lake Project budget at this time due to the HEA transmission line issue. At this time, SWEC is determining from FERC whether FERC would consider the stability issues cost as a project cost. It is the Power Authority’s interpretation that this is a project cost, since it will allow full utilization of the project. It is anticipated that if FERC agrees that this is a project cost, the bondholders will concur with this. At that time, the Power Authority Board of Directors will consider a stability support line item in the Bradley Lake budget with funds transferred from the contingency line item. The preliminary estimate of the cost of this work ranges from $3,000,000 to $5,000,000. Mr. Petrie made the commitment that the Power Authority would use contingency funds to modify the project budget for stability support. Mr. Yerkes said that initial computer runs by SWEC identified that it is unclear whether the governor will remain stable at loads less than 70% and asked the Power Authority for a briefing on this issue by SWEC design staff at the next TCS meeting. Mr. Yerkes also asked that the Power Authority not change the contractual obligations of Fuji or Woodward to perform this at this time. Mr. Yerkes reported that no analysis has been completed regarding surge tank installation due to the use of Pelton turbines on the Project. Surge tanks are needed with Francis type turbine wicket gates to solve the load ejection problem since there is no deflector with this type of turbine. Mr. Yerkes said that the stability and load pick-up capability issue was not addressed relative to installation of surge tanks with the Pelton turbines in order to improve the dynamic response. . BRADLEY PMC (BRADJUNS8.CHP) Page 7 of 8 MEETING MINUTES 7 . é 12. b. REA Approval Status Mr. Saxton reported that he had recently spoken with Larry Beluzzo, REA, and that Mr. Beluzzo had said that REA has not decided whether the PSA and Chugach Agreement must be tied to the HEA Agreement; however, REA will not approve the agreements without each other. Mr. Saxton said that the Chugach Agreement and PSA have been sent "upstairs" in REA and that no explanation has been received regarding why the REA review is proceeding so slowly. Mr. Saxton said that REA is unhappy with the HEA transmission line issue and that Mr. Beluzzo will tell Mr. Saxton on June 21, 1989 whether the agreements will be approved by REA. Mr. Petrie said that in the event that REA did not approve the HEA Agreement, the Power Authority would agree to a letter agreement or amendment to the PSA stating that the PSA and CEA Agreement are satisfactory to the purchasers to proceed with commitments to pay. It was noted that the intent of this would be to make the PSA binding without the HEA Agreement and remove the contingent approval currently required. 12. a. Homer Transmission Line Status Mr. Wick reported that the HEA Board of Directors rejected all Homer transmission line bids in May, 1989 and that the May 25, 1989 letter from REA is in response to that action. Mr. Wick said that HEA is awaiting confirmation of the $5,000,000 estimate for this work by Gilbert Commonwealth. Upon receipt of the results of their review, this issue would then go before the REA for review. In the event that Gilbert Commonwealth does not support the $5,000,000 estimate, the options include award of the contract to Irby or rebidding. Mr. Wick said that the first priority of HEA, in the event of rebidding, would be to build the Bradley Junction to Fritz Creek segment of the line, which would be completed prior to the Bradley Project coming on-line. @ Mr. Wick reported that Irby has submitted an offer of settlement with HEA; however, HEA is awaiting responding to this offer, pending REA and engineer’s approval. Legal counsel to HEA has said that the potential exposure to HEA is the cost of bid preparation by Irby (i.e., $20,000 to $25,000). Mr. Wick said that these funds would come from HEA general funds charged to the project. The HEA Board of Directors has authorized HEA to go out for bid for the transmission line poles. It is anticipated that the Board will review the proposals and award the contract for the poles at their June 27, 1989 Board meeting. The $5,000,000 estimate for the Homer transmission line includes $2,000,000 or 40% of the estimate for materials (i.e., poles) and shipping. Subcommittee Appointments It was noted that action was required by the PMC to appoint another representative to the Bond Finance Team vacancy resulting from Mr. Palin’s resignation. Ti, The motion ee by acclamation. Mr. Wick asked that he be replaced as a member of the Insurance Subcommittee. Sibawninee The motion comet by pony “- * *. BRADLEY PMC (BRADJUN8.CHP) Page 8 of 8 ‘ MEETING MINUTES 13. b. Schedule Next Meeting Chairman Kelly noted that an emergency PMC meeting might be called on or about July 21, 1989 in the event that REA did not approve the agreements. The next meeting of the PMC was scheduled as follows: i. Date July 28, 1989 ii. Location HEA Offices in Homer, Alaska iii. Time 9:00 a.m. 14. COMMUNICATIONS There being no further business or communications before the Committee, the consensus was to adjourn. 15. ADJOURNMENT Chairman Kelly adjourned the meeting at 1:50 p.m. MA. Chairman Kelly ATTEST: (if, Z laska Power Authority, Secretary Approved at PMC Meeting held July 28, 1989.